Prediction markets manipulation

12 Oct 2008

Via Twitter, an interesting NYT piece on political prediction markets. Just like real-life market, they are not immune to unscrupulous manipulation attempts. Apparently, in recent days, the McCain value has had odd fluctuations, possibly indicating agents trying to artificially boost its “price”. But how can you recognize a regular fluctuation from an artificial manipulation? The New-York Times piece notes that:

The biggest difference between typical market movements and manipulation is that honest traders will usually try to minimize the impact of their trades on the market price; paying higher prices for an asset only cuts into profits. But a market manipulator, intent on buoying the market’s ratings of their preferred candidate, will work to maximize the impact of their trading on the price.